Cash for keys is a controversial process debated often in landlord circles, but something that is loved and often used. Cash for keys is the strategy of giving tenants money to leave the rental property, avoiding the eviction process altogether. However, before throwing money at a renter, there are some points for a homeowner to consider.
Cash for keys is a simple transaction that avoids the legal system and doesn’t explicitly force a tenant to leave. Instead, the tenant agrees to voluntarily leave in exchange for money. The landlord hands them the cash; they hand over the keys, sign a release, remove their stuff, and go on their way.
The theory behind cash for keys is simple: Giving the tenant money to leave is cheaper than going through the eviction process. In brief, eviction requires the homeowner to sue the tenant, go to court, and (hopefully) regain possession of their property through a judgment.
Think about it: Evicting a tenant will likely take a month or longer, depending on the state. It could cost several thousand dollars in legal fees to do so, on top of the lost rent for at least a month, maybe two, or more. Then, the landlord has to deal with the cleanup of a tenant who was just evicted, which is never pretty. All in all, a normal eviction could cost around $5,000 or more. But what if the landlord could just offer the tenant $500 to leave the rental property in good condition? Exactly. That’s cash for keys.
7 principles to follow when using cash for keys
Of course, $500 is just an example. Maybe the landlord will want to give more. Maybe less. It will depend on the unit, the renter, and the motivation—and there may be some negotiation required for a successful cash for keys deal. However, $500 is usually enough to encourage a delinquent tenant to leave, especially if they’re facing eviction. For those who want to try cash for keys, the following seven principles should be followed.
1. Explain to the tenant in detail what they need to do
Tell them that the unit must be in move-in ready condition when they leave, so they have to clean it and take care of any repairs. This saves in cleanup costs and reduces the chance that the tenant will damage the property on the way out.
2. Give the tenant a specific date they need to move out
Typically, a landlord will not give any more than four days to move. The point of cash for keys is to get them out of the property quickly.
3. Give a pay or vacate notice anyway
This is typically the first step in the eviction process. Just in case the tenant doesn’t leave, the landlord will not have lost much time.
4. Meet with the tenant
Next, the landlord has to meet the tenant at the property and verify that the unit is, indeed, “broom clean.” To be safe, the landlord should have someone accompany them.
5. Inspect the property
Make sure the tenant lived up to their end of the bargain. The home should be cleaned out and in good shape. If not, the property owner has to show the tenant what needs to be done and has to set a time when to come back. Never give the tenant money until they are 100% out and have handed over the key.
6. Sign the paperwork
Have the renter sign a simple document that relinquishes their tenancy at the property. This is protection in case they later say the landlord changed the locks on them or that they did not really move out. The tenant has to sign and date the document.
7. Hand over the cash
If the tenant has held up their part of the deal, the landlord can hand over the money and thank them for a positive transition. Then the locks have to be changed immediately. If there is a security deposit, a landlord may deduct past due rent but still needs to provide an itemized list of deductions. Make sure to check the state’s law on how to deal with the security deposit.
The benefits of cash for keys
Obviously, getting non-paying occupants out of your property with the least hassle possible is the biggest reason to offer cash for keys. But here are some other benefits of executing this agreement.
Obviously, avoiding the eviction process saves time and money. And because the renter has to clean and fix up the rental property before they receive the cash, it also speeds up the process of them moving out.
Landlords should compute the true costs of a non-paying tenant—eviction and legal fees, mortgage payments, taxes, insurance, and utility fees—which can easily amount to thousands of dollars. And those costs do not even include the turnover expense once the tenant finally moves out. Yes, you may have to pay attorney fees to draw up a simple agreement. But that’s minimal compared to the amount of money you’ll shell out for eviction.
This is an investment into the next 12 months of cash flow. Landlords have to figure out the return on a $1,000 or $2,000 cash incentive to the renter versus the actual costs over the time it will take to get the property back. A non-paying tenant today may be in the rental property for months and months if a landlord has to wait for the courts to solve the problem.
Control of the outcome
The main selling point of cash for keys is that the landlord can control the outcome. They will know when the tenant will leave, can somewhat control the condition the tenant turns the property back over in, and can control the timeline. A non-paying tenant can leave any day with anything they want in the house and without a care of the condition of the property.
It may also benefit the tenant
In many cases, the cash given to the tenant may provide them with a fresh start. For tenants down on their luck, these funds can help them start over, allowing them to avoid getting their name dragged through the mud in a long, drawn-out legal case. Also, the tenant does not end up with an eviction on their record, and they will have a spotless tenant record. This is where landlords can still have empathy and create a win-win situation for both parties.
Contact RPM Central Valley
For more property management tips, or to speak with us about the services we can offer you, contact us today by calling (209) 572-2222 or click here.